Raiding the GLD

Just yesterday, the GLD saw a withdrawal of 8.88 metric tonnes. This followed a drawdown of nearly 23 tonnes on Wednesday. In fact, since the start of 2013, the GLD is now down 59.61 metric tonnes or 4.42% of "inventory".

Hmmm. Now where has that gold gone?

Has it simply been returned to the Authorized Participants' vaults as investors reduce their exposure to precious metals?

Have GLD investors liquidated shares and taken delivery?

Or, as argued back in November, are the APs using the GLD as a store of gold that they can easily access anytime they struggle to find legitimate physical metal to deliver to clients demanding immediate allocation and delivery?

If the third bullet is true, then GLD drawdowns would be symptom of very strong, global physical demand.

The bullion banks finance their ‘physical inventory’ by leasing it or selling it to GLD and SLV shareholders/investors, then the bullion banks in turn use these ETF’s inventories as a ‘flywheel’ to both manage and leverage their physical reserves. For this walk-through, I will use GLD as an example. (One can substitute SLV for all that is described below relating to GLD except the basket sizes are smaller, constituting 50,000 shares).

Baskets of GLD shares are bought and sold through a limited number of Authorised Participants. The authorised participants, (AP’s), are JPMorgan, Merrill Lynch, Morgan Stanley, Newedge (a joint venture between Société Générale and Credit Agricole CIB), RBC, Scotia Mocatta, UBS and Virtu Financial. This is how it is supposed to work. The size of each GLD basket comprises of 100,000 shares, each share representing just less than 1 troy oz. The AP’s, transfer ALLOCATED physical gold to the trustee who in turn creates the required number of new baskets of shares and then transfers these newly created shares back to the AP. To redeem the shares for physical gold or silver, the AP’s transfer any number of the baskets of 100,000 shares back to the trustee who then redeems these shares and transfers allocated gold back to the AP.

This is all well and good on the face of it, but there are a number of ways this ‘allocated’ gold backing the shares in the ETF can be diluted /hypothecated in order for the bullion banks to ‘manage’ their physical reserves.

If, as is often the case, there is insufficient allocated inventory available to the bullion bank at the current Comex driven & discounted spot fix price to create the necessary new GLD shares backed by allocated gold, then it is possible for a bullion bank to borrow short these GLD shares from the ETF instead of providing the required Allocated physical to the trustee to meet this obligation thereby ‘fly wheeling’ this physical demand in order to meet obligations elsewhere, likely at the day’s gold fix. This obviously has the effect of manipulating price lower vs. the true immediate supply demand fundamentals as no allocated physical metal has to be bought on the open market at that days fix to meet this new share demand as should be the case.

This is now the point where transparency evaporates. The AP claims to be Short GLD while concurrently claiming to be backing it with an equal size long ‘UNALLOCATED’ spot gold position. However, LBMA unallocated gold accounts are run upon a fractional reserve requirement and leveraged around 100/1 so there is very little need to back this transaction with any real physical at this point; this is left until later as explained below. To unwind this short GLD position, the bullion bank has to ALLOCATE the required amount of unallocated gold and then transfer this gold back to the trustee thereby receiving back the required # of shares in order to repay the original GLD shares sold short.

However, in conjunction with concurrent concentrated short futures positions, the sole object of this entire charade is to assist in depressing the price of gold at times of strong physical demand so that the futures price can be capped, usually at key inflection points where the price would break out and also swamp the very large concentrated Comex short positions. If this were not the case, the bullion bank would simply bid up that days fix price until it reflected that days true supply demand price levels for that fix and provide allocated gold to meet this real demand at that higher price.

The resulting distortion now created between the real and paper market price is exacerbated through the use of heavy position concentration and leverage in the futures and derivatives markets, where these very same bullion banks then seek to profitably repay the shorted GLD shares at a lower price at the point at or below where the lines cross profitably. This then puts these bullion banks in a position to finally spot index UNALLOCATED gold against this naked short position only then moving to buy the now discounted unallocated gold into the Comex contrived dips. These discounted unallocated long spot index positions are then ALLOCATED at the upcoming fix, enabling both the repayment of the GLD short position at a profit but most importantly controlling the rise in price against much larger derivative positions elsewhere.

Conversely, as evidenced by the steady 12-year stair step rise in prices easily observed in the daily and weekly charts, despite this many-year capping, we have also seen an ever larger and untenable LBMA unallocated short positions grow to what I now consider to be extreme danger levels. The reason is as follows: When the Bullion bank needs to make good on the unplanned/unanticipated CB and sovereign physical allocations at the fixes, they have regularly achieved this by going long GLD vs. short/selling UNALLOCATED gold. They then immediately turn around and transfer the required number of baskets of GLD shares to the trustee and receive ALLOCATEDgold in return. Instead of settling/covering the short UNALLOCATED leg with this ALLOCATED gold, they are forced to satisfy these CB and Sovereign allocations by providing them this metal instead. The longer term price charts reveal this stair step higher, whereas we see no reduction, in fact from 2008 an increase, in the naked short Comex, (and unallocated OTC), bullion bank positions.

I hope this has been helpful in providing an insight into the internal dynamics of the ETFs and how the bullion banks continue to operate in the shadows.

Quite a few folks found this explanation a little too technical and slightly confusing. To help the cause, a few days later I took a stab at deciphering Andy's message:

Finally today, please allow me to take a stab at explaining in greater detail the "Guest Post" from Andrew Maguire. I posted it on Wednesday as we were leaving for Thanksgiving and I can see now where it caused some confusion. As you know, one of my favorite techniques for explanations is the chronological layout so let's give that a try. Additionally, I think I'm laying this out accurately. This is how I understand it. I'll check with Andy on Monday to ensure that this is at least close to being accurate. If it's not, I'll post some additional clarification then.

The "Authorized Participants" have a special relationship with the fund whereby they issue metal, 100,000 ounces at a time, to the fund in exchange for 100,000 share blocks.

This should function as a two-way street where the AP can get its metal back by redeeming shares and the AP can also supply additional metal in exchange for additional shares. THIS, HOWEVER, IS WHERE THE TRICKERY AND MANIPULATION BEGINS.

On big UP days in paper price, there is often a big physical demand in London and a big demand for additional shares in GLD.

This is a double whammy of demand. The Bullion Bank (and Authorized Participant) should have to not only supply metal at the London allocation but this same BB/AP might also have to deliver metal to GLD to cover all of the newly-issued shares.

I think you can see where that's a lot of metal and, in an environment of limited inventories, rapid BB/AP supply depletion would lead to shortages and even higher prices.

So, here's the trick they employ to manage the situation, even doing so at a profit: The GLD delivers the gold back to the AP without the AP actually redeeming their shares. The AP is considered to be "short" the shares, instead.

These shorted shares provide the "offer" against the investment world "bid" for GLD shares that day on the NYSE. Since no new shares are needed to be created that day, no new demand for physical deposit is created, either.

On the other side of this trade, GLD delivers metal to the AP as if it had redeemed the shares, though. The AP uses this metal to settle the physical allocations for that day.

So, where there should have been two, separate demands for physical, the demand was met by short-selling GLD and then using this GLD metal to meet allocations in London.

The effect is then chronicled by Harvey and others as "gold went up $20 but, mysteriously, GLD shed 2.72 tonnes".

Here, then, is how they reverse these "trades" and return everything to where they were. The BB/AP that is short the metal to the GLD needs to put it back in at some point. The next time a paper price raid is effected on the Comex, the AP itself takes delivery of some metal in London.

This metal is then returned to the GLD in exchange for a "covering" of it's short position.

This, typically, takes place on a DOWN day where Harvey et al notice that "though gold declined $15, the GLD added 2.72 tonnes of metal today. Go figure."

Anyway, I hope this helps explain the process. Again, the Bullion Bank that is also an AP of the GLD can "flywheel" metal into and out of the GLD and/or SLV anytime they need to in order to meet physical demand elsewhere. In the process, the BB/AP conveniently provides liquidity for GLD/SLV share demand, which negates additional GLD purchasing which would have otherwise been necessary. It's a true WIN-WIN-WIN for the BB/AP as they are able to cap and control price while appearing to have no problem meeting London demand and then they turn around and cover all the positions at a profit on the next bout of price weakness.

Again, THIS IS NOT SUPPOSED TO BE HOW IT WORKS. The banks are supposed to supply metal to both the GLD and the London buyers.There is not, however, sufficient supply to make this happen at the current price levels. So, instead of allowing price to rise to the natural equilibrium of buying and selling interest, the BB/AP uses the tricks outlined in Andy's guest post to manage and cap the situation. On the bright side, THIS CANNOT CONTINUE FOREVER and, WHEN it fails, the reset in price will be spectacular to behold.

By the time the next week rolled around, there was an active discussion on the internet regarding the accuracy of this analysis. (No doubt this post will reinitiate the "discussion" and bring out many of the same commentators.) Here's a link to the follow-up discussion, posted a few days later. Before you form an opinion on the matter, you'll definitely want to read both sides of the issue: https://www.tfmetalsreport.com/blog/4354/cage-match-bron-vs-denver-dave

So there you have it. All of this should all make a very interesting reading assignment for you as we wait for today's GLD numbers. Could there be another huge drawdown? If so, what does it mean? Does it even matter? I look forward to reading your comments.

TF

p.s. Andy just recorded this morning another interview with KWN. Be sure to check that site later today for the full interview.

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Capital controls are coming, I cannot imagine otherwise. Having assets outside the US is just plain common sense, if one has the means to do so in a way that they are comfortable doing.

"Ah, but what good is having assets outside the US if one cannot exercise the benefits (i.e., spend) those assets" one might counter. Yes, it is true, it would be a miraculous walk from the Northeastern US to Singapore. One must have both the legal right, and the means, to retrieve those assets.

About the legal right: I strongly recommend pursuing dual citizenship. Yes, for most people it's a long and/or expensive proposition, but, frankly, I'm too afraid to NOT do it.

About the means: work to keep enough real assets at-hand to make it possible. Oil will stop flowing and airplanes will stop flying only for those who cannot afford them, which will be the majority of people, likely everyone who has placed their faith in paper wealth. You aren't one of those people.

So, instead of allowing price to rise to the natural equilibrium of buying and selling interest, the BB/AP uses the tricks outlined in Andy's guest post to manage and cap the situation. On the bright side, THIS CANNOT CONTINUE FOREVER and, WHEN it fails, the reset in price will be spectacular to behold.

If you go to ebay and look at completed Morgan and Peace dollar auctions you will see what bidders are paying and its never @ spot. Yes $22 is a very good price! I doubt you could touch a slick cull Morgan for less than say $29 plus shipping. Be careful on craigslist and always meet to buy in a very public place and be strapped if you know what I mean.

For the week, price fell about $45. While this was taking place, the LargeSpecs added 1900 longs and a jaw-dropping 25,000 shorts! The LS net long ratio falls to an very bullish 2.12:1. The SmallSpecs got in on the act, too. They dumped 400 longs and added nearly 5,000 new shorts. This is an extremely bullish, contrary signal.

But the real action was by The Cartel. They added 4,300 new longs and covered an incredible 24,200 shorts. Again, who was buying while the specs were busy shorting? And who do you think will, ultimately, profit??

There is no silver shortage, at least no immediate silver shortage as I outline before when I spoke about having a conversation with the director concerning buying 1.5 tonnes of silver. As a follow up to that email, I got a query from a member of this site, can't remember his name, but he asked why 1.5 tonnes? well that was me trying to keep the numbers realistic for a single buyer. However it was indicated to me that I could order more and receive within 2 days.

Now I know people refused to accept that as being the case, or were at the very least sceptical. So I decided to use another litmus test, I see right now that the current silver price in sterling is 18.81, so then I thought okay, so if there is a silver shortage it will be a sellers market as the retailers will be very keen to buy.

Therefore I switched on to one of the biggest (still don't know if it's the biggest) wholesalers in Europe and specifically looked for the popular coins and here is what I see....maple's buy back 19.22, britannia 19.88, american eagle 20.01, austrian philharmonic 19.22

So the premium they are paying to buy these coins from current holders is....

2.07% for philharmonic and maples

britannia 5.7%

Eagles just over 6%

So what this mean? the latter 2 are very powerful brands and both have a much higher retail price in the very first instance and the premium underlines their popularity.

Okay, fine, sometimes retailers do run out of some stock but I am bypassing the retailers and showing the picture from the wholesaler perspective.

As for the wider question of how much silver is out there, that is to be mined, ignore the Sprott's and Maloney's of this world as they have their own agenda and namely that is selling their product to you. The best people to obtain this information from, or at least get a better indicator from, would be well respected geologists.

Have said geologists responded to this issue? if not, then the rest is noise, noise by sales people.

Finally, watch out for China's slowing economy and watch out of economy's which are in the interim bottoming as that will push the metals lower too. Only invest what you can afford to lose and yes, if the price drops you are losing the ability to acquire other things, you are losing opportunity in this sector too.

For the reporting week, the price of silver fell about $1.60. Look what was happening internally:

The LargeSpecs dumped 1,150 longs and added 4,450 shorts. After reaching an unheard of extreme of 6.5:1 just two week ago, the LSpec net long ratio is all the way back to a mildly bullish 3.1:1

The SmallSpecs added 500 longs and 3700 shorts. Again, as in gold, the specs are racing to get short.

The "commercials"...pretty much all big firms except JPM and their con-conspirators...added another 2,026 longs, bringing their total gross long position to a never-before-seen 54,208. Simply incredible! They've continued to add longs all the way down. What do they know? What are they expecting??

The Silver Cartel...namely JPM and their two or three pals...were finally able to cover 6,800 of their disgustingly large short position. It's still disturbingly high at 92,164 but the total commercial net short ratio, which last peaked in September of last year at 2.6:1 has now declined to a quite bullish 1.7:1 Nearly every drop in The Cartel net short ratio to near 1.5:1 has preceded a substantial rally. We are very close!

All in all, both CoTs are extraordinarily bullish and indicative of a bottom very soon. Hang in there, now. Your patience will soon be rewarded!

You are a god sent t othe site. not to many people out there that are not interested in buying metals come to this site to do Gods work. But you are a spotlight.. You are an enigma. You are one of the special ones that helps provide comfort to all of us. I can't thank you enough for providing your well thought out assumptions and letting us know that we should not follow sprott. yeah they seem like really evil people and their analysis seems way off too. Man i almost fell for it, but having you around now has made me realize what this site is all about and how all the billionaires and millionaires ive spoken to here in the USA buying gold and silver since the early 2000s are wrong. Yeah they made a lot of money but what do they know about supply and demand in the PMs. And just because SPROTT has several geologist working for him, they are probably on the take too to help provide phony numbers.

Your service to all of us is a blessing from the HOLY SPIRIT. There's no manipulation. All markets are free and all the politicians of the world are here to do good for all of us. i hope Ben keeps printing so i can take my dollars and buy other stuff too.

I've seen the light now. Keep coming around Daveyboy to provide us with your insights and knowledge of every last detail. you are doing GODs work. how on earth did you find us. Amazing

Nice to see the numbers and read all of that. Very encouraging. The PM's from 12:45 on were encouraging to see as well all the way into the close. I think we may have turned the corner on week to remember.

What a mature reaction, sorry that you are not grown up enough to refute my words in anything other than sarcasm, am sorry that you have chosen to worship a piece of metal, sorry if I offended your metal god. However I don't play that conformity game and if I offended GOOD, because it clearly shows you are not thinking clearly.

Whistleblower Andrew Maguire: “The gold and silver markets have become virtual markets. There is no physical aspect, essentially, to the way they trade on an intraday basis. Extremely large volumes of synthetic supply is just created and exchanged. That’s primarily through the bullion banks, who also have exposure to the physical market, and the managed money and the specs.

So when you look at the COMEX, it’s not a delivery market. It’s actually no more than a casino. The price of real physical gold in the actual world markets is, by default, set at the margin because of this incredible leverage. It bears absolutely no relationship to the real, unleveraged supply/demand fundamentals.

But here is what we are actually witnessing now: This dislocation is about to blow up....

Just a heads up Turdites. The Beast of Mammon (also know as "The Bernank") gives testimony on Feb 26th and 27th. Mark that on your calendar. You know the MSM will be all over it especially supreme deuche bag Steve Liesman. All hail Bernank may you rot in hell for ruining all things holy to us.

Until we stay above 1579 or below. I'm sure martin armstrong is sweating. Do we go to 1400s or not. Interesting seems like every month Martin the pooker, Armstrong says if we go to a certain number we go so much lower. He's good too.

The net short position of the large commercials is 104435 - a level we havent seen since the beginning of 2009 and I strongly suspect that next weeks COT is going to bring the net short position dramatically lower still.

The large commercial net short position (LCNS) as a % of OI is at 29%. For comparison, at the most extreme period of recent history, in 2008, the LCNS reached as low as the low 20's very briefly twice (with gold then below $750), but since 2008 the LCNS only rarely has moved below 35% (as it did last summer for three weeks with gold then in the $1,550s).

This is about as bullish as it gets - especially considering the last 3 days which arent even covered on todays COT.

Consider this - the cartel has massively dumped their shorts but have hung onto their longs. The large specs have gone massively short (and probably tremendously more so the past couple of days).

The stage is set for the cartel to push the gas pedal to the floor and ramp the price upwards which would then force the large specs to buy to cover their incredibly large short position.

I do it because it's HEALTHY to have a different opinion, I post on here because the range of views is interesting, I post on here because as a form of insurance, hard assets are a good idea, I post on here because I like engaging with others and if they can put me straight on some misinterpretations I may have then good.

Ended midweek. After that we saw fireworks. I bet we see another very similar CoT report next week as I think the Cartel will move to a very close to a net neutral position and then the blowout will happen. Even if they don't net neutral DURING price manipulation, they would net neutral themselves EARLY in the upswing....I think they would settle for that.

March may come in as a dainty silver lamb, but the mighty silver lion will roar is it goes out.

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